AT THE RESEARCH SCHOOL OF ECONOMICS
COLLEGE OF BUSINESS AND ECONOMICS
AT THE AUSTRALIAN NATIONAL UNIVERSITY 
 
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Current Research
 
"The Great Russian Devaluation and Labor Demand"
 
(Download)
Under submission
Does a greater degree of integration into world markets lead to a more elastic demand for labour? Often referred to as the Rodrik hypothesis, this question, despite being important from both theoretical and applied policy standpoints, is still not satisfactorily answered. Several studies that examine data for different countries, periods and aggregation levels, have failed to draw uniform conclusions. Likely reasons for this fact include poor and aggregated data, a lack of large enough shocks in tariffs, an inability to separate the effect of trade from that of other reforms, and the absence of rich sets of predictions from models. In this paper, I avoid these concerns by using a unique firm-level panel data set for several thousand manufacturing firms in Russia during a period of significant and rapid currency devaluation. This event made imports of final and intermediate goods more expensive while making Russian exports less expensive and acted like a tariff on imports and/or a subsidy on exports. In a simple, but yet revealing model, I specify the implications of a devaluation for the labour demand and derive a set of testable predictions. I then use the data and reduced form regressions to test the essence of these predictions and show that trade barriers affect labour demand elasticities. In particular, I find that a 20-30% drop in the conditional labour demand elasticity for production workers and somewhat smaller drop of 15-20% for non-production workers can be safely attributed to the devaluation.
 
 
"Firm Heterogeneity and Costly Trade:
A New Estimation Strategy and Policy Experiments"
 
(Joint with Svetlana Demidova, Hiau Looi Kee, and Kala Krishna)
 
(Download)
Revise and Resubmit, Econometrica
This paper studies how heterogeneous firms respond to trade policies in their export markets. Firms are heterogeneous in two ways: they face different demand conditions in each market and have different productivities. We thus augment the standard Melitz framework and embed it in a partial equilibrium small country setting. The model is designed to deal with real world trade policy variations, like tariffs, preferences and the fixed and variable costs of obtaining them. Our estimation procedure can be used on purely cross sectional data, and requires only commonly available variables at the firm level such as sales, and the number of firms, which significantly extends its empirical applicability. The application is to Bangladeshi apparel exports to the US and EU. We are able to recover all the parameters of the model, including the multiple levels of fixed costs that firms incur in producing and exporting, preference parameters, and the parameters of the distributions that underlie the multidimensional heterogeneity.
The estimated model implies that there is a very large response of exports to changes in fixed or variable costs. This occurs primarily through changes in the mass of firms entering the industry while the sales of incumbent firms change by little. As a result, trade liberalization by one country, say the EU, results in an increase in exports of Bangladesh to all its export markets, rather than diversion from these markets to the EU. Our work suggests that developing countries could significantly raise their exports by investing in ways of reducing the costs of exporting. This includes improving infrastructure at all levels: from building ports and roads to providing expertise and access to critical factors like refrigeration, irradiation, and certification of produce to meet international standards.

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Last Updated: August, 2013.
 

 
 
 

 
 

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